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Wall Street Breakfast

Author: bmotrader   |   Latest post: Fri, 10 Sep 2021, 7:54 AM

 

Wall Street Breakfast: Rising COVID Restrictions

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Companies are taking the lead in adopting mask and vaccine requirements as COVID Delta cases grow and equities remain resilient. A host of headlines about new policies and restrictions hit yesterday, including New York City requiring proof of vaccination for entry to restaurants, gyms and leisure events. But again, most moves came from private companies.

Tyson Foods will require its workforce to be vaccinated, JPMorgan (JPM) is re-evaluating its back-to-the-office policies and Microsoft (MSFT) is requiring vaccinations for its returning workforce. In addition, Google parent Alphabet  (GOOG, GOOGL) has approved 85% of employee requests to work from home or relocate once its offices open, Bloomberg reports.

Amid all those moves, Wall Street put together a rally from midday into the close, with recovery sectors leading the way. All the major averages ended higher, with the S&P 500 (NYSEARCA:SPY), Dow (NYSEARCA:DIA) leading the Nasdaq (NASDAQ:COMP.IND). Strength in cyclicals, which would be the hardest hit on worries about a stalled economic reopening, could indicate that investors feel the economy can weather moves to stem the spread of the Delta variant. That would be in contrast to last month, when the Delta spread was a major reason for sell-side strategists to hesitate on new allocations, according to BofA.

Looking for the peak: Thomas Lee of Fundstrat Global Advisors argues the company and locality moves will help by driving up vaccination rates. “Policymaker panic about Delta variant is triggering a vaccination resurgence = good,” Lee writes in a note. “The positive upshot of a panic by policymakers is that more Americans are getting vaccinated. The rise in vaccinations is most evident in states hit hardest by this recent Delta variant. Policymakers panic = good, businesses respond by pushing/mandating masks = good, businesses respond by pushing/requiring vaccinations = good, Americans witness COVID-19 severe illness and get vaccinated = good.” Fundstrat's base case is that the Delta variant surge in the U.S. will peak in August, which it says should encourage investors.

“Given August is already a poor liquidity month, a buyers' strike makes markets more turbulent,” Lee says. “But if our base case plays out, August will ultimately be a 'risk on' month and we will chop higher. Thus, the July chop will continue into August, but with an upward bias.”

If “the Delta variant does not peak in the next few weeks (as is somewhat expected) then the chances of lockdowns will rise, and that will potentially impact earnings,” Kinsale Trading writes. They point investors to today's ISM Services numbers, out at 10 a.m. ET, where the index is expected to tick up slightly in July from June. If “the Delta variant is causing any sort of headwind on the economy, it’ll show up in the service sector PMI first, as people pullback on eating out, etc,” Kinsale says.

Wells Fargo says it does not think the Delta variant will be a “game changer” for the U.S. economy and sticks with its portfolio recommendation to favor cyclicals, especially Industrials (NYSEARCA:XLI) and Materials (NYSEARCA:XLB).

Stocks - Best beats ever

Analysts now expect earnings for S&P 500 (SP500) (NYSEARCA:SPY) companies to be up 90%, up from 65.4% at the start of July, Reuters reports, citing Refinitiv data. And 89% of reports have beaten profit forecasts, the highest ever based on data going back to 1994.

"As we enter the second half of the year, we believe companies will continue to build on the earnings recovery displayed in recent quarters, as more areas of the economy adapt and get closer to normal levels of activity throughout the year," BMO strategist Brian Belski says. Six weeks ago, analysts were predicting Q2 S&P 500 earnings of $44.59 per share, but they are now up to $50 and on track to hit $51, according to DataTrek Research. That leaves room for more upside revisions, as analysts are "still being overly cautious" as revenue will continue to grow in the second half of this year and 2022 barring an "exogenous shock," DataTrek says.

Softlines Strength:  An expert call on U.S. softlines retailers is giving UBS some confidence that the back-to-school shopping season is reading out "very strong," offering a bullish catalyst for several stocks. A call with a former chief merchant from a large department store suggests that with some parts of the country ramping up for the school year, sales growth rates are robust and margins are likely to surprise to the upside as well.

For most of the retailers, Q2 has been strong, and they've been able to maintain growth rates (vs. 2019) very close to what they saw in the first quarter. And July sales give a good back-to-school read for the earliest school starters (and sales have been good in those areas). Signs suggest back-to-school shopping started early as well. "With inventory levels low, shoppers have realized they need to buy sooner in order to get the goods they want," analysts Jay Sole and Mauricio Serna write. "Categories such as athletic footwear, apparel, backpacks, and dorm items are all selling very well."

Financials - Robinhood rally

Robinhood Markets (NASDAQ:HOOD) soared nearly 25% to a post-IPO record high Tuesday as the popular investing app’s shares rose for a third straight session following their weak premiere last week on Wall Street. HOOD rose to as high as $48.59 a share Tuesday before pulling back to end at $46.80, up 24.2% on the day. The rally took shares above their $38 IPO price for the first time since a brief pop on the stock’s first trading day last week.

Robinhood rose on heavy volume of 86.9M shares, exceeding the 55M shares the stock sold through its initial public offering. HOOD was rallying on little apparent news other than positive comments Monday night from CNBC’s Jim Cramer on his widely watched Mad Money show.

“I’m telling you that Robinhood can be bought here,” the market maven said. HOOD has been rebounding ever since the stock fell 8.4% in its first trading session last Thursday. The decline represented a big disappointment for the company, whose IPO  was priced at the bottom of its expected $38-$42/share range even though it had been expected to take Wall Street by storm.

Lyft: The reopening of the economy proved to be a boon for Lyft (NASDAQ:LYFT), as the company reported second-quarter revenue that topped expectations as consumers flocked back to its ride-sharing services. The company also said it reached another milestone in the quarter by reporting adjusted earnings for the first time, and ahead of schedule. Lyft said EBITDA came in at $23.8 million, compared to a loss of $280.3 million a year ago. Lyft said revenue for the three months ending June 30 reached $765 million - more than double the $339 million the company reported in the year-ago period - and above analysts' forecasts of almost $701 million.

Another sign of the company's recovery could be found in its revenue-per-active rider, which came in at $44.63, compared with $39.06 a year ago, suggesting that riders were taking more and longer rides. Active riders also reached 17.1 million, or nearly twice that in last year's second quarter, and up from the 13.5 million active riders Lyft reported for the first three months of 2021.

Consumer - Tutor stocks rebound

Chinese tutoring stocks including TAL Education (NYSE:TAL) gained, possibly on reports that China is ordering mass testing in Wuhan due to a COVID outbreak.

China suspended flights and trains, canceled professional basketball and announced coronavirus testing in Wuhan earlier on widening outbreak of the Delta variant, according to an AP report.

The online tutoring companies may potentially benefit if there are coronavirus-related school closures that force students to go online, a topic that posters were discussing on Stocktwits. The positive moves for the stocks come after the shares have plummeted in recent weeks after China said it would ban for-profit after-school tutoring companies.

Earlier this week, TAL and New Oriental announced they would cancel their earnings releases amid the regulatory developments.




 

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